Pushing Principal Reductions

When the principal reduction program was rolled out two years ago, those incentive payments weren’t extended to Fannie and Freddie, and their regulator has said there are less costly ways to help borrowers avoid foreclosure. The firms are being propped up with massive taxpayer infusions of their own, and the FHFA is tasked with preserving the firms’ assets.

By providing new taxpayer funds, the administration is making it harder for the FHFA to maintain its stance that principal reduction is less costly because Treasury funds will effectively subsidize some of those losses. The FHFA has said it is currently evaluating the newest proposal.

The firms are “working right now…to make a decision on whether they are going to begin principal reduction,” said Mr. Donovan. “We certainly hope that they will start to do that based on these incentives. That’s why we made them available.”

4 Comments

“Providing new taxpayer funds”? What makes “new” funds any more worthy of justifying further losses than the “old” billions we’re already shoveling into these black holes?

shadash
February 20, 2012

I pay my mortgage on time. These type of programs incentivize me to…

1. Save my money and earn a return on it
2. Not pay my mortgage
3. Play chicken with foreclosure
4. Beg for a principle reduction

It’s discraceful that people that paid more than they can afford on a house are being painted as victims.

Thaylor Harmor
February 20, 2012

I heard that a majority of the principle write down money from the $26 billion settlement will NOT go to Homeowners, rather politician pet projects.

clearfund
February 20, 2012

To me, all this says is that next time there is a housing boom, leverage up, keep refinancing cash out, and when it gets lofty, stop paying and get rescued.

The playbook will be very well defined by then and the gov will go right to it and repeat the bailouts….and then some. There will likely be significant case law by then to mandate principal reductions/bailouts/etc and the legal world will be all over it.

Knowing this will make the problem 2x worse next time as all the mortgage payers in this round won’t want to be ‘suckers’ next time around.

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